Copper price eyes auction above $3.50 as DXY plummets, demand forecast accelerates

• Copper prices have remained shy of $3.50 but are likely to surpass the crucial hurdle.
• A highlight of softer retail demand by the Fed has dragged the DXY.
• The accelerating demand for copper in China has strengthened copper prices.

Copper prices, as per the COMEX Futures, have displayed a juggernaut rally as the US dollar index (DXY) has shifted into a negative trajectory. The base metal has remained shy of the crucial resistance of $3.50, however, the asset is expected to overstep the same swiftly.

The DXY witnessed a steep fall on Wednesday after the Federal Reserve (Fed) passed a less expected hawkish commentary in its monetary policy meeting. Fed chair Jerome Powell announced a consecutive rate hike by 75 basis points (bps) and presented a target for interest rates near 3.5% by the end of 2022. After the rate hike announcement by 75 bps, the interest rates have escalated to 2.25-2.50%.  

In his commentary, Fed highlighted an observed slump in retail demand, which forced the market participants to dump the DXY. However, the job market is rock solid and is delighting the Fed.

On the supply front, the suspended copper production by Chinese miner MMG Ltd due to a long protest at its Las Bambas mine in Peru, as reported by Reuters has supported copper prices. In times, when monsoon seems over in the major provinces of China and other nations in Asia, a halt in copper production is sufficient to accelerate base metal principally. Lower supply will cater to the higher demand only at premium prices.

Also, the growth rate of Covid-19 in China is stable now, which has trimmed the odds of a severe lockdown. Stagnancy in the growth rate of Covid-19 indicates that the pandemic will be at its peak sooner and there is will no restrictions on economic activities.